Let`s Revise AQA ECON3!

I thought it would be a good idea to revise this way, im getting a bit bored of just reading over my notes lol. Why dont we do this? I`ll ask a question, someone answers it and then they ask the next question and so on?

1. Define an Oligopoly

A market structure where the majority of the market is concentrated in the hands of a few large firms. Examples include consumer electronics, banking, and, of course, supermarkets.

What are 2 types of collusion? Give examples of each. (P.S. Good idea!)

Thanks
Tacit (Price Leadership) and Overt (Cartel)

What is Allocative Efficiency?

Allocative efficiency is the optimum allocation of scarce resources that best accords with consumers' pattern of demand. Occurs where MC=AR.

2 advantages of undertaking CBA and 1 disadvantage?

2 advantages=Easy to understand as you`re simply looking at whether the benefits outweigh the costs.With a cost-benefit analysis, you can look at several scenarios at the same time to help you make the best decision
Disadvantage=Costs are difficult to forecast and can change over time

What are the main objectives of a manager and shareholder within a firm?

Manager - depends what kind of manager. If operations they would look for output maximisation, for example. But general manager would look for market share/market power so would probably want to sales(revenue) maximise. They would want production where MR=0 where MC would more likely to be positive so not minimising costs. May look to satisfice as may not have perfect info about MC etc...

Shareholder - would want as high dividends as possible so would look for profit maximisation. HOWEVER: they may also seek social responsibility in terms of providing a good workplace because costs associated with labour turnover may reduce etc. Firms who ignore externalities in the pursuit of profits will receive heavy censure and will go out of business.

Why might mergers be good for consumers?

If the larger firm can reduce average costs with increased output, these lower average costs enable lower prices for consumers.
Mergers may allow greater investment in R&D because the new firm will have more profit which can be used to finance risky investment. This can lead to a better quality of goods for consumers as well as a wider range of goods

What are the conditions necessary for Price Discrimination?

Ugh hate price discrimination - if it comes up tomorrow I'm screwed BUT.... Firm controls whatever is offered, resale can be prevented and different elasticities of demand.

3 ways the government can intervene to correct environmental market failure.

Lol I`m ok with Price Discrimination, just hope trade unions doesnt come up!

Regulation
Privatisation of common resources
Taxation

Outline the kind of profits firms in Perfect Competition can make, both in the Short run and the Long run and why

I thought it would be a good idea to revise this way, im getting a bit bored of just reading over my notes lol. Why dont we do this? I`ll ask a question, someone answers it and then they ask the next question and so on?

1. Define an Oligopoly

Short run - can make supernormal profits in the immediate short run but wont shortly after due to no barriers to entry and perfect info. Firms will enter forcing the price down until they get normal profit. All supernormal profits will be competed away.

Long run - will make normal profit due to above.

How can you make a market more contestable?

a concentrated market with the existence of very few firms,it is defined by a concentration ratio,which is the percentage of the market share each firm has compared with other firms.oligopolies are also interdependent,because they have to take into account how other firms might react if they increase or decrease their prices.

that isn't too concise but best I can do aha

Good
Remember you have to add in another question for us to answer!

aha yeah
how can a firm experience both economies and dis-economies of scale in the long run

Economies of scale is when a firm begins to increase its output in the SR, until it reaches MES. to the point where it has achieved Productive Efficiency thus creating the maximum level of output possible at the lowest possible unit cost. Then it begins to experience Diseconomies of scale, where its experiences a rise in average costs due to having to control a larger business and cooperate more with those involved.

Hope thats right lol


Give an example of non-price competition

brilliant chain of reasoning dude
one example of non price competition would be advertising and marketing .advertising ensures that the firm is able to make their product known to a wider scope of people.this ensuring that the product or service is exposed to many people as possible,and also consumers may become more loyal to the firm because advertising is done with the purpose of proving or illustrating why each firms good or service is of greater quality than that of its rivals.advertising can therefore increase revenues for a firm as output begins to increase if the people exposed to the advertising begin to change their spending habits.it is simply therefore a way differentiation in markets such as oligopolies where price competition is not as successful.

explain why and how a monopoly can achieve both productive and dynamic efficiency?

Same to you
A monopoly can achieve Productive efficiency in the LR as it can make supernormal profits in both the SR and LR, if there are no barriers to entry. It can then reinvest these supernormal profits into Research and Development to create lower costs and a wider range of output. It can achieve Dynamic efficiency similarly, by investing in Research and Development.

Explain the law of diminishing returns

the law of diminishing returns refers to the idea that as an added variable factor of production is added to the sum of fixed cost such as labour,marginal product of labour should fall with each variable unit added,until the addition of an extra worker is not able to take advantage of any utilization gains of the fixed factors.for example there is not enough machinery for each worker and thus adding another extra worker is not useful,In this way marginal product begins to fall

three reason why there is unequal distribution of income in the uk?